Having a small business is not the tricky part, it’s preparing a budget – especially when you are not used to making budgets. Some small businesses fail within their first five years in operation due to lack of attention to revenue (sales) and expenses (fixed and variable costs). These factors can lead to low margins, low or zero (even negative) profits, and cash-flow crises. If you are planning to prepare a budget, here are some common budgeting pitfalls to avoid:
Sabotaging Your Own Self
Believe it or not, some small businesses fail because the owners are their own worst enemy. Different factors and character traits might contribute to a business owner’s failure. These include stubbornness, perfectionism, insecurities, greediness, un-teach-ability, being adverse to risk-taking, and more. Some business owners can rarely see these negative traits in themselves.
Believe it or not, some small businesses fail because the owners are their own worst enemy. Different factors and character traits might contribute to a business owner’s failure. These include stubbornness, perfectionism, insecurities, greediness, un-teach-ability, being adverse to risk-taking, and more. Some business owners can rarely see these negative traits in themselves.
Bad Accounting
Some business owners refuse to hire personal accountants because they would only mean one thing: additional expenses. However, having your own accountant to help you oversee the financial life of your business is essential when you are a business owner. You should not expect to keep everything under control, especially when you lack the experience and expertise. It is not wrong to ask for an expert’s help especially when it is your business that is on the line.
Some business owners refuse to hire personal accountants because they would only mean one thing: additional expenses. However, having your own accountant to help you oversee the financial life of your business is essential when you are a business owner. You should not expect to keep everything under control, especially when you lack the experience and expertise. It is not wrong to ask for an expert’s help especially when it is your business that is on the line.
Over Expansion
This usually happens when a company has experienced a big success and the owners bite off more than they can chew in terms of borrowing money and moving into new markets that do not prove as profitable as the first one. This might be due to lack of maturity in terms of handling tough situations and this can greatly affect your small business in a negative way. You should avoid this by planning carefully and taking every little and big thing into consideration before executing any actions.
This usually happens when a company has experienced a big success and the owners bite off more than they can chew in terms of borrowing money and moving into new markets that do not prove as profitable as the first one. This might be due to lack of maturity in terms of handling tough situations and this can greatly affect your small business in a negative way. You should avoid this by planning carefully and taking every little and big thing into consideration before executing any actions.
Ineffective Operations
This includes different aspects of business such as paying too much for labour, rent or materials. This becomes a problem for business owners who are not entirely honest about what they are really capable of financially speaking. As a small business owner who wants to keep improving his or her business, you must leave your company some margin for difficulties.
This includes different aspects of business such as paying too much for labour, rent or materials. This becomes a problem for business owners who are not entirely honest about what they are really capable of financially speaking. As a small business owner who wants to keep improving his or her business, you must leave your company some margin for difficulties.
Lack of Cash Cushion
When you are in the business industry, you know well enough that bad things do happen. It sounds a bit pessimistic, sure, but it is something that we should all grasp. Knowing this and still not having cash cushion to help you if you fail is the worst thing you can do as a business owner. Too much optimism, to the point of it becoming unrealistic, can be disastrous for any small business. You have to be ready for the bad times and have sufficient cash cushions to prevent you from failing badly.
When you are in the business industry, you know well enough that bad things do happen. It sounds a bit pessimistic, sure, but it is something that we should all grasp. Knowing this and still not having cash cushion to help you if you fail is the worst thing you can do as a business owner. Too much optimism, to the point of it becoming unrealistic, can be disastrous for any small business. You have to be ready for the bad times and have sufficient cash cushions to prevent you from failing badly.
